Friday, 25 May 2012

The Sunk Cost Fallacy; or what Charlize Theron has to do with the Bathers Beach Upgrade

A couple of months ago, my wife persuaded me to see a movie called Young Adult at the Luna on SX. It starred Charlize Theron in one of her more arty roles (alarm bells are already ringing, aren't they?) but my wife was set on the idea and, knowing that it would do me no harm to have some bargaining power when The Avengers came out in a few weeks, I acquiesced.

However, within five minutes of the movie starting, my wife was squeezing my hand and shooting me apologetic glances because it was clear this movie was going to be excruciating. Really, really terrible. The sensible thing would obviously have been to cut our losses and leave so at least we had some of the evening left to enjoy, but did we do that? Of course not. We just sat there till the bitter end.

The experience got me wondering, what made my wife and I so determined to sit out the whole two hour running time, even though it was clear to both of us that we weren't going to enjoy ourselves? And there were lots of other things we could be doing instead? I asked my wife what she thought.

"Well, it might have gotten good."
"Did you really think that?"
"So why did we stay?"
"Well, we'd paid for it, hadn't we? It wasn't even cheap night."

And there, in a nutshell, is the Sunk Cost Fallacy. The truth is that our decisions are tainted by the fact that the more we invest in something, the harder it becomes to abandon it. Having paid $30 for a movie, walking out after five minutes would feel like money down the drain. Of course, the truth is that our money was gone the minute we walked through the door - there was no getting it back. The end result of sitting through the whole movie was that instead of just wasting $30, we wasted $30 and 2 hours of our time. Staying wasn't rational, but it felt better.

So, what does this have to do with Bathers Beach, I hear you ask? (Luckily for me, even if you're getting bored at this point, the Sunk Cost Fallacy says that you'll be almost pathologically unable to abandon reading the article since you've already invested several minutes in it.)

Well, I've long been perplexed by the disconnect between the attitudes of Council and the community regarding the upgrade. The flaws in the project are so obvious, and the community criticism so vehement, that it seems like it would be an easy decision for Council to make - get rid of the dustbowl and some of the tarmac, and put in some grass.

But instead, Council's response to community discontent has been to either issue coy, watery and frankly nonsensical statements that they're going to "wait and see what it's like when it's finished", or to take a more agressive stance and claim it's community opinion that's flawed, and we plebs should show more appreciation for what is a spectacular heritage interpretation of the area, and stop wanting unreasonable things like grass to sit on, or not getting grit in our eyes. One only need read the City's media release regarding community backlash over the upgrade to get a taste of the bullish, obtuse attitude that has so far characterised their response (click here).

So what's behind Council and the City's refusal to cut their losses and fix the dustbowl and the charmless stretch of tarmac? Is it just that they don't want to admit an error? There's a famous precedent for the operation of the Sunk Cost Fallacy in the corporate sphere that's very applicable to the Bathers Beach situation.

"The sunk cost fallacy is sometimes called the Concorde fallacy when describing it as an escalation of commitment. It is a reference to the construction of the first commercial supersonic airliner. The project was predicted to be a failure early on; but everyone involved kept going. Their shared investment built a hefty psychological burden which outweighed their better judgments. After losing an incredible amount of money, effort and time, they didn’t want to just give up." 

David McRaney, The Sunk Cost Fallacy (click here for the rest of his very readable article)

The Sunk Cost Fallacy tells us that, having invested a lot of time, energy and money, Council and the City will find it extremely hard to abandon their plans and make new ones. It feels wrong. Nevermind that the money is already gone forever, and the more sensible approach would be to swallow the bitter pill and make the necessary changes. Just like my wife and I or the makers of Concorde, they're desperate to believe that despite all indications to the contrary, it just might get good.

My concern is that Council and the City will be guided more by the Sunk Cost Fallacy than by common sense when they're evaluating its success or failure and deciding what changes to make. In their desperation to prove themselves right, to avoid acknowledging they've made a bad call, they'll look at the dustbowl with rose coloured glasses (which in any case will be handy for keeping the grit out of their eyes).

Like my wife and I struggling to remember a vaguely funny moment of the movie that would make the experience seem worthwhile, they'll look at the project and say "at least the boardwalk works".

Next week I'll take a closer look at the kind of criteria I'd like to see used when Council evaluates the Bathers Beach project. In the meantime, my advice to anyone grappling with this problem would be to swallow your pride, use your noggin instead of your gut, and go see the Avengers instead.

1 comment:

  1. On a larger and far more disturbing scale this also applies to Planning Scheme Amendment 49. Council had invested so much time that they refused to listen to the community and went for highrise against the wishes of the majority!

    Good governance is about admitting to getting it wrong sometimes and make amends, not putting blinkers on.

    Roel Loopers